Demand might be good for your product or service, but if you can’t efficiently deliver what you’re selling, you can’t maximize your sales. A poor organizational structure not only hurts your ability to maximize opportunities, but can also create problems can lead to serious financial consequences. Understanding the impact of a poor company structure will help you take steps to ensure your internal management operations let you take your business to the next level.

Organizational Structure

Organizational structure refers to the assignment of management duties and how you organize your various functions. Many small businesses start with a flat organizational structure, which has a few key employees reporting to and working directly with the owner. As companies grow, they often create hierarchical corporate structures, which include departments, executives, managers and subordinates. They then create organization charts that show the totem pole, both in terms of functions and employees.

Poor Communication

A poor organizational structure can lead to miscommunication because people might not be sure who needs information or where to send important messages. For example, a sales manager at a small company might create a new customer sign-up form to help new clients start ordering more easily, getting approval from the owner of the company to use the form. If the new form isn’t shared with the bookkeeper, she might not know how to qualify new customers for credit or invoice them properly. This can lead to delayed orders and long waits for payment from clients. This also can result in customers not getting product, forcing them to find another supplier.

Lack of Strategic Management

To maximize your growth potential, you’ll need to make plans for the future that create opportunities, rather than simply wait for new business. Without an organizational structure that puts key executives or employees together on a regular basis, it will be difficult to create effective long-term strategies. Strategic management includes creating growth through objectives such as introducing new products, using new distribution channels, expanding geographically or going after a new target market. These strategies often require input from your marketing, accounting, information technology, production and sales managers.

Reduced Productivity

When your organization isn’t set up to create effective communications or doesn’t foster creative strategic management, you can miss opportunities, allow problems to continue and reduce employee morale. An employee who has two superiors might get conflicting directions and not want to follow either until she gets approval from higher up. When employees aren’t happy, they might not volunteer new ideas or might leave for a better job. Poor organizational structure can lead to a reduction in productivity, decreasing your growth potential. For example, when sales people don’t communicate with production managers about large orders they know will be coming in the months ahead, the production department can’t make the most effective scheduling plans, leading to a lack of production capacity, labor availability, warehouse storage space and shipping efficiencies.

Damaged Company

In addition to the external frustration you can experience with a poor organizational structure, you can create problems for your customers when they don’t get timely answers to their questions, receive poor customer service or have to wait longer than normal for delivery of product. When this happens, you might lose customers, lose references and the ability to attract new customers and reduce revenues enough to damage your business. Once you start missing payroll, can’t repair equipment and machinery or start racking up a credit card, you create a downward spiral that’s hard to turn around.

About the Author

Sam Ashe-Edmunds has been writing and lecturing for decades. He has worked in the corporate and nonprofit arenas as a C-Suite executive, serving on several nonprofit boards. He is an internationally traveled sport science writer and lecturer. He has been published in print publications such as Entrepreneur, Tennis, SI for Kids, Chicago Tribune, Sacramento Bee, and on websites such Smart-Healthy-Living.net, SmartyCents and Youthletic. Edmunds has a bachelor's degree in journalism.